Europe TiO2 buyers criticise producers' lack of investments

LONDON (ICIS)--A lack of investments by titanium dioxide (TiO2) producers in Europe could result in the market's current tightness lasting for years, according to buyers and traders on Thursday.

Several buyers said that producers were happy for the market to remain tight and raise their prices and profits, rather than satisfy demand.

Buyers' disgruntled reactions came after producer Kronos said this week, when it announced a 2010 fourth-quarter net income of $21.8m (€15.7m), that profit levels did not justify capacity expansions.

“It is a joke that Kronos don’t have the money to build new capacity. They are making as much as they can, rather than invest and build new capacity. All the producers are doing the same,” a trader said.

Kronos last month announced intentions to increase second-quarter TiO2 prices by €200-250/tonne due to market tightness, following the €225/tonne increase targeted by DuPont and Tronox. Huntsman aims to raise second-quarter prices by €175/tonne from the first quarter.

Buyers were already struggling as values since the fourth quarter of 2009 have shot up by 20-30% to €2.30-2.55/kg FD (free delivered) NWE (northwest Europe), based on analysis of pricing data by ICIS. This was the result of strong demand and restricted availability.

Customers said the market was structurally short after capacities were wound down during the recession. They added that now, despite demand picking up as the economic recovery is underway, manufacturers are reluctant to increase output.

Producers argued they are running flat out and were unable to increase output further. A source at Kronos said that there were several constraints to overcome before the company could commit to expansions.

“We need to see these kinds of margins over a long period before we invest hundreds of millions of dollars in new capacities,” the source said.

Manufacturers also cited the increasing cost of upstream feedstock titanium ores, which is due to limited availability, for the price increases, along with uncertainty about the future. The uncertainty stems from a structural shortage of the feedstock, which could continue for a couple of years.

At the very least, buyers said they want more transparency and information from suppliers with regard to where they stand on reinvestment and when it could become viable. Producers said this was nearly impossible to predict given the current volatility in the market.

As a result, the tight TiO2 market shows few signs of easing anytime soon, especially given that it takes a number of years to bring new plants on line once there is a commitment to build them.

“The latest word is that this crisis could continue until 2015,” according to a trader.